Microsoft today reported earnings for the first quarter of 2021, including revenue up 12% to $ 37.2 billion, net income of $ 13.9 billion, and earnings per share of $ 1.82 (compared to revenue of $ 33.1 billion, net income of $ 10.7 billion and earnings per share) portion of $ 1.14 in Q1 2020). All three of the company’s operating groups saw year-over-year growth.

Analysts had expected Microsoft to achieve sales of 35.7 billion US dollars and earnings per share of 1.54 US dollars. The company slightly exceeded expectations, suggesting that some (but not all) units are benefiting from the effects of the pandemic. The company’s stock rose 1.5% in regular trading and unchanged in over-the-counter trading. Microsoft returned $ 9.5 billion to shareholders in the form of share buybacks and dividends in the quarter.

COVID-19 Impact on the Quarter

Microsoft is the first technology giant to release results for a second full quarter during the coronavirus pandemic. For the past two quarters, Microsoft has had a minimal net impact on the company’s total revenue, according to COVID-19. This time, Microsoft simply said, “The focus remains on ensuring the safety of our employees, striving to protect the health and well-being of the communities in which we operate, and providing technology and resources to our customers and partners to help them get their jobs done Best work at a distance. Indeed, Microsoft CEO Satya Nadella spoke about ‘digital transformation’ and didn’t even mention the virus.

“The next decade of economic performance for any company will be determined by the speed of its digital transformation,” Nadella said in a statement. “We innovate across our modern tech stack to help our customers in every industry shorten time to value, increase agility and reduce costs.”

A 48% increase in sales for Azure is good news for the company. Azure growth has steadily declined: 76% in the second quarter of 2019, 73% in the third quarter of 2019, 64% in the fourth quarter of 2019 and 59% in the first quarter of 2020. It rebounded slightly to 62% in the second quarter of 2020, but returned decreased to 59% in the third quarter of 2020 and then decreased to 47% in the fourth quarter of 2020. The slowed growth is normal with Azure size, and while the pandemic accelerated the trend, it appears to have calmed down.

MSFT Azure revenue growth
– 1st quarter 2018: 90%
– 2nd quarter 2018: 98%
– Q3 2018: 93%
– 4th quarter 2018: 89%
– 1st quarter 2019: 76%
– 2nd quarter 2019: 76%
– 3rd quarter 2019: 73%
– 4th quarter 2019: 64%
– 1st quarter 2020: 59%
– 2nd quarter 2020: 62%
Q3 2020: 59%
– 4th quarter 2020: 47%
– Q1 2021: 48% https: //t.co/ru1cuCBFZr

– Emil Protalinski (@EPro), October 27, 2020

“Demand for our cloud offerings got off to a good start to fiscal year. Our commercial cloud revenue was $ 15.2 billion, up 31% year over year,” said Amy Hood, Microsoft CFO , in a statement. More cloud usage but slower revenue growth means signing up new customers and billing existing customers won’t be as easy during the pandemic. Microsoft does not provide accurate Azure sales figures, which is likely to avoid comparisons with industry leader AWS.

Company group highlights

Here are the highlights in Microsoft’s three operating groups:

  • Productivity and Business Processes: Up 11% to $ 12.3 billion. Office commercial revenue grew 9%, Office consumer and cloud revenue increased 13%, and Dynamics revenue increased 19%. LinkedIn revenue grew 16%, and Office 365 consumer subscribers reached 45.3 million.
  • Smart Cloud: Up 20% to $ 13.0 billion. Sales of server products and cloud services increased 22%, while sales of Azure increased 48%.
  • More Personal Computing: Up 6% to $ 11.8 billion. Windows OEM sales decreased 5% while Windows commercial sales increased 13%. Search advertising revenue, minus traffic acquisition costs, decreased 10%. Surface sales increased 37% and Xbox content and services sales increased 30%.

Microsoft Office continues to be a cash cow for the company thanks to its Office 365 subscription. It is important to have over 45 million subscribers to Office 365, but it still pales in comparison to the corporate side. In the third quarter of 2020, Microsoft allocated 258 million paid Office 365 business seats (up from 200 million). When calling the results for the first quarter of 2021, Nadella revealed that Microsoft now has 115 million active team users every day.

On the Windows side, the situation is now mixed. In Q3 2020, Microsoft warned that “the impact of COVID-19 may not be fully reflected in financial results for future periods.” Thanks to remote work and remote learning trends, Windows OEM and Windows Commercial sales increased in the fourth quarter of 2020. At the same time, Windows OEM declined in the first quarter of 2020 while Windows Commercial increased. It appears that while businesses are still investing in new equipment, consumers have met their computer purchase needs.

LinkedIn, Surface and Gaming

Microsoft LinkedIn was doing well until the pandemic. Since the acquisition closed in December 2016, LinkedIn has seen double-digit revenue growth for Microsoft. However, in the third quarter, Microsoft issued a warning: “In the final weeks of the quarter, there has been a slowdown in transactional licensing, especially in small and medium-sized businesses, and a reduction in ad spend on LinkedIn.” In the fourth quarter, LinkedIn cut around 960 jobs, which is 6% of the global workforce. It looks good in the first quarter, but there are no more 20% + growth quarters. In the earnings report for the first quarter of 2021, Nadella reported a growth of LinkedIn of 16% compared to the previous year to 722 million users.

Surface continues to make $ 1 billion per quarter. Q1 2020 ($ 1.35 billion) and Q2 2020 ($ 1.98 billion) followed the usual pattern, as the former is the company’s worst quarter for Surface while the latter is the best. The third quarter of 2020 ($ 1.34 billion) was unchanged, and the fourth quarter of 2020 ($ 1.72 billion) was excellent as Microsoft weathered the surge in PC demand. The first quarter of 2021 ($ 1.55 billion) was also decent considering the first quarter was typically the worst surface quarter. In May, Microsoft began shipping Surface Book 3, Surface Go 2, Surface Headphones 2 and Surface Earbuds. Now that we have a full quarter of sales from these devices, they seem to have done well. (Microsoft doesn’t split surface revenue by device.)

For gaming, Q1 2020 and Q2 2020 were disappointments for Microsoft. The third quarter of 2020 was a little better while the fourth quarter of 2020 was a home run. The first quarter of 2021 appears to be somewhere in the middle as players wait for the Xbox Series X and Xbox Series S to arrive next month. Xbox content and services revenue grew 30% and overall game revenue increased 22%. Games are doing well during the pandemic, and Microsoft has a lot to look forward to before this holiday season.

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